Taking civil servants out of the south has long been the measure government advisers reach for when looking for ways to bring down costs. And, as even armchair strategists accept that the financial crisis requires every shot in the locker, the government is looking at relocation anew.

Over the past 12 years the government has only relocated civil servants in modest increments. However, cabinet secretary Gus O'Donnell's favourite fact is that, contrary to perception, most civil servants are not based in London. This is true when you factor in the employees of Jobcentre Plus, Revenue & Customs or the Ministry of Justice: the proportion of civil servants in London has dropped from 37.6% in 1987 to 26.9% 20 years later. In terms of top mandarins, the picture is different, with a large number based in London or the south-east.

The argument runs that relocation is sure to save money: if civil servants refuse to move, they lose their job and cheaper regional workers are recruited; if they agree to relocate then they move to cheaper offices in the regions. The former civil servant Sir Michael Lyons, who first looked into relocation savings, said workers in the capital were typically paid 27% more than those outside.

Today a Treasury spokesman was upbeat about "sweating savings" from this area, saying that they had "overperformed" on earlier relocation moves recommended by Lyons. The first tranche had seen 20,000 civil servants relocated (in order to save £20bn), and was boosted by 4,000 in this year's budget, meaning 24,000 civil servants have left the south-east in the past five years.

Now the government is looking at the 132,000 who remain in London and 90,000 in "arm's lengths bodies".

But bosses risk losing talented and knowledgeable members of staff who do not want to relocate. And David Halpern, a former Blair adviser and research director at the Institute for Government, has a warning: "These moves can introduce new divisions. I'm thinking for instance of the divisions it introduced to education. All the analytical guys were based up in Sheffield and all the guys doing the actual policy were in London. To my mind this was certainly a factor in the education failures of the late 90s."

There will be difficulties in deciding who goes. A political official working alongside civil servants said: "I bet you could find here a number of people – not based in the private office but in the department – who I don't need to speak to and who my minister doesn't need to talk to at all. We might not see them in nine months but then something unexpected might crop up and then we may need to see that civil servant much more often. How, then, do you judge who is 'required for ministerial support or personal interaction'?"

Liam Byrne, the cabinet member behind the plans, appears to have a 2009 twist. According to sections given to the Guardian, Byrne wants relocated civil servants to work with the communities their policies affect, underlining his message that community groups must assume a larger role in delivering services. This would build on the establishment of "Whitehall champions" for local areas which sees the environment department's permanent secretary, Helen Ghosh, operate as the ambassador for Birmingham. Local people who feel bamboozled by government departments failing to communicate with each other can approach Ghosh.

Halpern welcomes this: "It may be the government are working on radical ideas to not just remove civil servants but remove central government powers, which are anyway replicated between the two: you'd be amazed by how much money is wasted in the replication of services because different departments have no idea what else is going on …"

This project, Total Place, is due to report with recommendations on how much the government can save.

But why stop at the white cliffs of Dover? Halpern suggests the Department for International Development could be relocated with ease as its business is largely conducted abroad. "In fact, since so much of our aid budget goes to the World Bank, what would be the problem with DfID being relocated to Washington?"

There are certain to be big fights with the unions. Byrne has anticipated this, saying: "Where there are difficult decisions, we need to take them … because if we do not show that we are a party for all seasons, then quite simply, we won't be hired to work in all seasons."